On Wednesday, April 28, 1999, the official transcript of thedeposition of Microsoft Chairman Bill Gates was released.

1 A. It's an electronic mail alias for a
2 group of people.
3 Q. And who did that constitute as of
4 May of 1995?
5 A. I'm not sure, but it would have
6 included most of the officers.
7 Q. On the second page of the memorandum,
8 second paragraph you say, "Most important is that the
9 Internet has bootstrapped itself as a place to
10 publish content. It has enough users that it is
11 benefiting from the positive feedback loop of the
12 more users it gets, the more content it gets, and the
13 more content it gets, the more users it gets."
14 Can you explain what your reference was
15 to a positive feedback loop?
16 A. Well, it's explained right there. It
17 says "the more users it gets, the more content it
18 gets, and the more content it gets, the more users it
19 gets." I mean I don't expect that people know what
20 the term means, so I explain it right in that
21 sentence.
22 Q. Is the positive feedback loop something
23 that, in your estimation, would result in ever
24 increasing popularity of the Internet?
25 A. No.
78
1 Q. Did you anticipate in May of 1995 that
2 the Internet would become increasing popular?
3 A. It had become more popular, yes.
4 Q. Was one of the reasons you thought it
5 would be more on popular was that more content would
6 be written for the Internet?
7 A. Created to Internet standards, yes.
8 Q. And was it your understanding or
9 expectation that the more content that was written,
10 the more users there would be?
11 A. Yes.
12 Q. In the fourth page of your memorandum
13 in the second paragraph above the heading "Next
14 Steps," you state, "A new competitor 'born' on the
15 Internet is Netscape. Their browser is dominant,
16 with 70% usage share, allowing them to determine
17 which network extensions will catch on."
18 Do you recall how you determined that
19 Netscape's usage share was 70 percent at this time?
20 A. No.
21 Q. Is your reference to "network
22 extensions" a reference to APIs?
23 A. No.
24 Q. What is it a reference to?
25 A. To network extensions.
79
1 Q. And how do you define that?
2 A. Things that let you do richer things
3 across the network.
4 Q. Can you give some examples?
5 A. Advanced HTML. HTML tables. HTML file
6 tags.
7 Q. Did you undertake a reorganization of
8 Microsoft back at this time in order to position the
9 company to respond better to the Internet?
10 A. Not at the time I wrote this memo.
11 Q. Under the heading "Next Steps" you say
12 "The challenge/opportunity of the Internet is a key
13 reason behind the recent organization."
14 What were you referring to?
15 A. I'm not sure.
16 Q. What did you perceive the challenge/
17 opportunity of the Internet to be at this point in
18 time?
19 A. That users were interested in using the
20 Internet and so we needed to make sure that our
21 software was doing a good job of that and that that
22 was a challenge in the sense that other people could
23 do it and that was competition and an opportunity in
24 the sense that it would grow the importance of our
25 strong software work.
80
1 Q. On the next page you talk about various
2 critical steps. Were these steps to respond to the
3 challenge/opportunity of the Internet you described
4 in the earlier part of your memorandum?
5 A. I'm not sure what you mean by that.
6 Q. You outline several critical steps.
7 Can you explain why you felt they were critical?
8 A. For all the reasons I cite in the
9 entire memo. I mean the whole memo -- there's part
10 of the memo that precedes these steps. I could read
11 the memo up to the point of the critical steps to you
12 if you want.
13 Q. What was your purpose in sending this
14 memorandum to your key executives?
15 A. To talk about my view of the Internet
16 tidal wave.
17 Q. Did you also outline your views as to
18 what steps Microsoft needed to take to respond to the
19 Internet tidal wave?
20 A. There's a part of the memo that talks
21 about steps.
22 Q. And in that part of the memorandum, are
23 you outlining the steps that needed to be taken in
24 your view to respond to the Internet tidal wave?
25 A. I'm suggesting some steps I think we
81
1 should take. I wouldn't say they are all related to
2 one particular thing, but I make some recommendations
3 here.
4 Q. The second step here relates to
5 something called the "Client." Is that a reference
6 to Internet Explorer?
7 A. No.
8 Q. What is it a reference to?
9 A. Client here means Windows.
10 Q. You say, "First we need to offer a
11 decent client (O'Hare) that exploits Windows 95
12 shortcuts."
13 Is not O'Hare a reference to client
14 here?
15 A. Client means client operating system.
16 Q. Why did you put "O'Hare" in parentheses
17 after the word "client"?
18 A. Probably because that's the part of
19 Windows that exploits Windows 95 shortcuts.
20 Q. What Windows 95 shortcuts did you have
21 in mind?
22 A. Windows 95 shortcuts is a technical
23 term. And the O'Hare part of Windows exploits this
24 feature known as Windows shortcuts. It doesn't mean
25 shortcut as in the common sense use of the term
82
1 shortcut. It means the technical feature Windows 95
2 shortcuts.
3 Q. When you use the term "O'Hare" in the
4 e-mails that you write, what do you mean?
5 A. Well, this -- in this case I meant the
6 group that was working on that part of Windows 95.
7 Q. And what part is that?
8 A. The part that supported HTML.
9 Q. Is that the part that became known as
10 Internet Explorer?
11 A. Yes. Most of the work in Internet
12 Explorer came out of that group.
13 Q. Further down in this paragraph you
14 refer to Plus pack. Is that again a reference to
15 something also referred to at Microsoft as Frosting?
16 A. Yes, Frosting was a name we used for
17 what later became known as Plus pack.
18 Q. Do you recall it was in or about that
19 time frame that Microsoft was doing everything it
20 possibly could to include the O'Hare client in the
21 Windows 95 package?
22 A. And by that you mean the Windows 95
23 full product? Yes.
24 Q. Who was responsible at Microsoft for
25 accomplishing that?
83
1 A. I'm not sure you could point to one
2 individual.
3 Q. Was there one individual that had
4 primary responsibility?
5 A. Brad Silverberg managed the group that
6 was doing a lot of that work.
7 Q. Did you periodically have something you
8 called Think Week?
9 A. Yes.
10 Q. What is Think Week?
11 A. It's setting aside a week of time where
12 I have no meetings or phone calls and I get a chance
13 to use products and learn about new research work
14 that we're doing and other people are doing.
15 Q. Do you recall one of the subjects you
16 devoted time to in your 1995 Think Week was the
17 Internet?
18 A. I'm sure I did.
19 Q. Do you recall receiving information
20 from your subordinates in connection with your 1995
21 Think Week on the subject of the Internet?
22 A. Well, before I go off on Think Week, I
23 get boxes of information, usually three cardboard
24 boxes. And some of that I get a chance to look at
25 and some of it I don't. I don't recall specifically
84
1 what I was given for that Think Week.
2 MR. HOUCK: Let's mark as Exhibit 346 a
3 memorandum -- strike that -- an e-mail from Pat
4 Ferrel to Russ Siegelman dated May 3, 1995, on the
5 subject of Bill G's Think Week documents.
6 (The document referred to was marked
7 by the court reporter as Government Exhibit 346 for
8 identification and is attached hereto.)
9 Q. BY MR. HOUCK: Do you recall whether
10 you reviewed the attachment to Exhibit 346 in
11 connection with your Think Week activities in 1995?
12 A. I don't think I did.
13 Q. I won't ask you any questions about it
14 then.
15 How did the process work for giving you
16 Think Week materials? Did your senior executives
17 collect items that might be of interest to you and
18 send them to you for your review?
19 A. Well, most of my Think Week time is
20 focused on technology issues and so there is a
21 variety of people I solicit to provide input. It's
22 not -- many of them are not executives, but people
23 who might have things that I'm interested in learning
24 about.
25 Q. Do you recall that Mr. Siegelman was
85
1 one of the people whom you asked to collect materials
2 for you for your 1995 Think Week?
3 A. I think probably I asked Brian Flemming
4 to gather the material and he would have gone out to
5 the other people asking.
6 Q. What position did Mr. Flemming have
7 in --
8 A. He had an assistant position working
9 for me.
10 Q. Was it your expectation that the
11 inclusion of Internet Explorer with Windows would
12 drive up Internet Explorer's market share?
13 MR. HEINER: Objection. Ambiguity.
14 THE WITNESS: I'm not sure what you
15 mean. We do know that when we included Internet
16 Explorer in Windows, it gained basically no market
17 share.
18 MR. HOUCK: I'd like to mark as
19 Exhibit 347 what purports to be a transcript of a
20 question-and-answer session with Mr. Gates and others
21 at Microsoft's Financial Analysts Day on July 24,
22 1997. And this is a document I've downloaded from
23 the Microsoft Website, Mr. Gates.
24 (The document referred to was marked
25 by the court reporter as Government Exhibit 347 for
86
1 identification and is attached hereto.)
2 Q. BY MR. HOUCK: I'll ask you to take a
3 look, sir, at page 8 of Exhibit 347.
4 And before you do so, let me ask you
5 this. Do you recall attending this Financial
6 Analysts Day Executive Q & A session?
7 A. Yes.
8 Q. And what is that exactly?
9 A. It's a chance for people to ask
10 questions.
11 Q. And who attends?
12 A. Some people from the press, some people
13 from various financial firms or investment firms.
14 Q. On page 8 appears the following
15 question: "Bill and Steve, you both referred to the
16 importance of building browser share over the coming
17 year. Can you be more explicit about why browser
18 share is important to various aspects of your
19 business and maybe talk about some of the initiatives
20 you're going to be undertaking to increase it?"
21 And then Mr. Ballmer gives a response,
22 the last paragraph of which is as follows: "There
23 are a lot of things we're investing in over the
24 course of the next year in marketing. Of course, the
25 new browser is the key thing - IE 4.0. But if you
87
1 take a look at the initiatives, the content
2 partnership that Paul's teams have formed, the things
3 that we're doing with ISP, the work we're doing with
4 large accounts on digital nervous systems, where the
5 IE browser -- IE 3 today, IE 4 tomorrow -- is fairly
6 fundamental to what we're doing on browser share, the
7 way we're trying to get large accounts, and large and
8 small accounts to author their content to use our
9 dynamic HTML stuff; all of those actions should help,
10 I think, drive up our browser share."
11 And you're quoted as saying, "Yeah,
12 along with the integration."
13 Do you recall that question and your
14 giving an answer, Mr. Gates?
15 A. No.
16 Q. Do you have any reason to doubt the
17 accuracy of this transcript?
18 A. Well, in general, transcripts like this
19 which come off an audio tape are somewhat unreliable,
20 but I don't have a specific recollection about that
21 specific question and answer.
22 MR. HOUCK: I'd like to mark as
23 Exhibit 348 an e-mail from Mr. Allchin to various
24 people dated January 6, 1997.
25 (The document referred to was marked
88
1 by the court reporter as Government Exhibit 348 for
2 identification and is attached hereto.)
3 Q. BY MR. HOUCK: What do you understand
4 the second e-mail to contain, Mr. Gates, on
5 Exhibit 348?
6 A. Looks like Ben Slivka is making some
7 comments on something.
8 Q. Do you understand that this e-mail
9 contains slides that were prepared for a presentation
10 you made or were to make in or about January of 1997?
11 A. No, these are not slides that were
12 prepared for me to give. I think these are -- it may
13 have been something that Ben Slivka was looking at
14 doing, I'm not sure.
15 Q. The subject of the second e-mail from
16 Mr. Slivka to Mr. Maritz is "Overview slides for
17 BillG/NC & Java session with 14+'s on Monday."
18 Do you know what the reference here is
19 to a "session with 14+'s"?
20 A. Well, 14 probably refers to the fact
21 that in our jobs in the technical group, level 14 is
22 a fairly high level. And I know we had a meeting
23 where we asked some of those high-level people to
24 come and sit and talk about our strategy and indicate
25 what they thought about the strategy.
89
1 Q. Do you recall making a presentation
2 yourself at that meeting?
3 A. I made a presentation, but not of these
4 slides.
5 Q. What was the subject of your
6 presentation?
7 A. I don't recall exactly, but it
8 certainly wasn't these slides.
9 Q. Do you recall a discussion at that
10 session of the NC and Java challenge?
11 A. No.
12 Q. Do you have any understanding as to
13 what is meant here by the NC and Java challenge?
14 A. I'm sure NC stands for network computer
15 and the competition that came from that direction.
16 And Java I'm sure refers to the competition coming
17 from that direction.
18 Q. Why did you consider Java to be a
19 challenge at this point in time?
20 A. Well, the term Java is used in a lot of
21 different ways. There's a part of it with respect to
22 run times that was a direct competitor to Windows.
23 Q. Under "Key Platform Challenge" the memo
24 states "Possible emergence of a set of APIs and
25 underlying system software that lead to lesser or no
90
1 role for Windows."
2 Do you recall any of the portion of the
3 discussion on this subject at that meeting?
4 A. No.
5 Q. The next sentence says, "Puts our other
6 (server and apps) businesses at a disadvantage."
7 Do you recall any portion of the
8 discussion on this subject at this meeting?
9 A. No.
10 Q. Under the heading "Response Summary"
11 various items appear. One is "Increase IE share"
12 followed by "Integrate with Windows."
13 Do you recall any discussion about this
14 portion of the meeting?
15 A. Remember we haven't established that
16 these slides were ever presented at any meeting, so
17 no, I don't recall that being discussed, but doing it
18 in the context of the slides means nothing to me
19 because I don't -- certainly don't think I presented
20 any slides like this.
21 Q. Do you have any recollection of a
22 discussion at this meeting as to how to increase IE
23 market share?
24 A. No.
25 Q. Next page refers to another response as
91
1 "Differentiate through Windows integration."
2 Do you recall any aspect of a
3 discussion on this subject?
4 A. No.
5 Q. Do you recall -- strike the question.
6 Is it correct that the Netscape browser
7 was one of the principal means through which the Java
8 virtual machine was distributed?
9 A. I don't know what you mean "was
10 distributed." Certainly the Java virtual machine has
11 the ability to be distributed with any application
12 over the Internet, so just like all software on the
13 Internet, distribution is wide open.
14 Q. Did you form any judgment yourself as
15 to whether the Netscape browser was the major
16 distribution vehicle for the Java virtual machine?
17 A. Well, I don't know what you mean "the
18 Java virtual machine." Understand that many
19 different companies have Java virtual machines.
20 Netscape had one that was different than the one that
21 Sun had, which was different than ours, which was
22 different than HP's, which was different than IBM's,
23 which was different from Novell's, so you'll have to
24 be more specific. But in terms of distributing those
25 things, they're out there on the Internet easy to
92
1 get.
2 MR. HOUCK: I'll mark as Exhibit 349 an
3 e-mail from Paul Maritz to Mr. Gates and others dated
4 July 14, 1997.
5 (The document referred to was marked
6 by the court reporter as Government Exhibit 349 for
7 identification and is attached hereto.)
8 Q. BY MR. HOUCK: To save time, I'll tell
9 you I'm going to ask you about the very first e-mail
10 here from Mr. Maritz to Mr. Dunie and yourself and
11 others. And in particular, where it says "If we look
12 further at Java/JFC being our major threat, then
13 Netscape is the major distribution vehicle."
14 Do you see that?
15 A. I see it.
16 Q. What does JFC refer to here, if you
17 know?
18 A. Well, as I said, it's all about run
19 time APIs and JFC was the term for what Netscape was
20 putting out as a set of run time APIs, which was
21 different than what Sun was putting out but was their
22 Netscape 1.
23 Q. Do you have any understanding as to
24 what Mr. Maritz meant here when he referred to
25 Netscape as the major distribution vehicle?
93
1 A. Well, Netscape had some unique APIs and
2 one of the ways they were distributing it was through
3 their software products, including the browser.
4 Q. Did you understand that in Mr. Maritz's
5 view Netscape was the principal means by which people
6 were acquiring the Java virtual machine?
7 A. Well, you actually started these
8 questions asking about Sun's virtual machine and I
9 explained to you that Netscape's is different, so I'm
10 not sure what you're referring to now.
11 Q. What did you understand, sir, by
12 Mr. Maritz's reference to being the major
13 distribution vehicle -- strike that.
14 When Mr. Maritz said that Netscape was
15 the major distribution vehicle, what did you
16 understand him to be saying the vehicle for?
17 A. The Netscape run time bits. Not Sun's
18 virtual machine. It says JFC there, so obviously
19 it's not Sun.
20 MR. HOUCK: I'd like to mark as
21 Exhibit 350 an e-mail from Mr. Slivka to various
22 people dated June 12, 1997.
23 (The document referred to was marked
24 by the court reporter as Government Exhibit 350 for
25 identification and is attached hereto.)
94
1 Q. BY MR. HOUCK: The second e-mail on the
2 first page here is from Chris Jones and it says,
3 "Here is final copy of the memo we sent to BillG for
4 Think Week about what we should do to get to 30%
5 browser share."
6 Do you recall reviewing the attachment
7 as part of your 1995 Think Week?
8 A. I didn't review it.
9 Q. What were Mr. Jones's responsibilities
10 in 1995?
11 A. Good question.
12 Q. Do you recall?
13 A. No. He might have worked for Maritz.
14 MR. HOUCK: I'd like to take a short
15 break now. Do you want to stop for lunch now or --
16 MR. HEINER: Let's take a lunch break.
17 VIDEOTAPE OPERATOR: The time is
18 12:04 p.m. We're going off the record.
19 (Lunch recess.)
20 THE VIDEOGRAPHER: The time is 12:54.
21 We're going back on the record.
22 Q BY MR. HOUCK: In or about June 1995,
23 Mr. Gates, did you become involved in the planning
24 for some meetings with Netscape?
25 A No.
95
1 Q I'd like toe mark as Exhibit 352 --
2 351. I'd like to mark as Exhibit 351 an e-mail
3 chain. This appears to have been produced from
4 Mr. Gates' file.
5 (The document referred to was marked by
6 the court reporter as Government's Exhibit 351 for
7 identification and is attached hereto.)
8 Q BY MR. HOUCK: Mr. Gates, Exhibit 351
9 is a series of e-mails that relate to some meetings
10 with Netscape. And I'm -- I'm going to start my
11 questioning from the earliest one chronologically
12 which is at the back of the group of e-mails here.
13 So I think to save time, it might make sense for you
14 to look seriatim at the ones I'm going to be asking
15 you about.
16 A Seriatim?
17 Q Yeah. In other words, my first
18 questions are going to be about the e-mail dated June
19 1, 1995.
20 A June what?
21 Q June 1, 1995 at the back of this
22 package. So I'm suggesting before I ask you
23 questions about a particular e-mail, you review that,
24 and then when I come to the next e-mail, you can
25 review that one.
96
1 If you'd like to do them all together,
2 it's up to you. I'm just trying to save some time
3 here.
4 A What does seriatim mean? Serially?
5 Q Correct. One right after the other.
6 A But does it mean more than serially?
7 Q I'm going to ask you about one e-mail
8 at a time. I'll point out to you the one that I'm
9 going to ask you about.
10 A Okay.
11 Q And my suggestion is you'll read that
12 one first, and then I'll ask you about that. And
13 then when I turn to the next one, I'll let you know,
14 and you can look at that one. But if you want to
15 look at all of them together, you're welcome to do
16 that.
17 So if you proceed as I suggest,
18 seriatim or serially, whatever the case may be, what
19 I'm going to do is ask you first about the e-mail
20 that appears on what's page 100 of the document here.
21 MR. HEINER: Mr. Houck, one question
22 for you, if you know, did we produce these to you
23 stapled like this? Or is this a collection that --
24 MR. HOUCK: Actually, that's a question
25 I had for you. I'm going to throw it back at you
97
1 that this was produced serially, as you'll see, by
2 the production number they're consecutive numbers.
3 But the pages at the bottom are not consecutive, and
4 I was going to ask you if you knew why that was, if
5 there were some documents or pages that were a part
6 of a group of memoranda or e-mail that was not
7 produced to us. As you'll see, they're consecutive
8 production numbers.
9 So if you could take that under
10 advisement and let me know what the answer is, I'd
11 appreciate it.
12 MR. HEINER: Okay. I certainly don't
13 know the answer sitting here now. Which pages are we
14 talking about? Are you talking about the Bates
15 numbering or something else?
16 MR. HOUCK: Yeah. The Bates numbering
17 is consecutive, but the page numbers applied by
18 Microsoft at the bottom are not consecutive, so it
19 looks like these are part of a larger document. And
20 my question is if there are pages missing that were
21 not produced to us.
22 MR. HEINER: Okay. Those page numbers
23 just FYI are just a funny thing to see down there.
24 I'm not sure even what those refer to, but we'll try
25 to figure it out.
98
1 MR. HOUCK: Thank you. Okay.
2 Q The e-mail I want to ask you about
3 first, Mr. Gates, is dated June 1, 1995, and the very
4 top portion indicates that the bottom portion is
5 being sent to you for your information by Paul
6 Maritz, and the bottom portion is an e-mail from
7 Thomas Reardon dated June 1, 1995, on the subject of
8 working with Netscape.
9 Do you recall receivingthis memorandum
10 or e-mail?
11 A E-mail, no.
12 Q I apologize for using my old-fashioned
13 terminology.
14 You don't recall receiving this e-mail
15 particularly?
16 A No.
17 Q The e-mail states that,
18 "Dan and Barb and I met late
19 yesterday to review our recent
20 discussions with Netscape and form
21 our next few action items. Dan is
22 meeting with Jim Barksdale, their
23 CEO, shortly."
24 Do you understand the reference to Dan
25 to be a reference to Dan Rosen?
99
1 A Probably.
2 Q And is the reference for Barb a
3 reference to Barbara Fox?
4 A I mean, you could ask Thomas.
5 Probably.
6 Q Do you have any understanding, sir?
7 A Based on -- I've never spoken to Thomas
8 about this. I don't remember seeing the e-mail.
9 Q Do you recall speaking to anyone about
10 the meeting referred to here between Dan Rosen and
11 Jim Barksdale?
12 A No.
13 Q The e-mail goes on to list working
14 goals which are:
15 "1. Launch STT, our
16 electronic payment protocol. Get STT
17 presence on the Internet.
18 "2. Move Netscape out of
19 the Win32 Internet client area.
20 "3. Avoid cold or hot war
21 with Netscape. Keep them from
22 sabotaging our platform evolution."
23 Do you understand the reference to
24 Win32 Internet client to be a reference to Windows
25 95?
100
1 A No.
2 Q What do you understand it to be a
3 reference to?
4 A Win32.
5 Q Can you describe what that is?
6 A 32 bit Windows.
7 Q Is Windows 95 a 32 bit Windows product?
8 A It's one of them.
9 Q Were there any other 32 bit products in
10 development in June of 1995?
11 A Certainly.
12 Q Which ones?
13 A Windows NT.
14 Q Do you know whether Mr. Reardon was
15 referring to Windows NT and Windows 30 and Windows 95
16 or one or the other?
17 A Win32's a term that refers to all the
18 32 bit platforms.
19 Q And as I understand your testimony, is
20 that the 32 bit platforms under development in June
21 of 1995 were Windows NT and Windows 95; is that
22 correct?
23 A No. Windows NT was shipping and there
24 was a new version that was under development.
25 Q And Windows 95 was in development at
101
1 this time?
2 A Certainly.
3 Q In the portion of the e-mail
4 denominated No. 2 which is, "Move Netscape out of
5 Win32/Win95, avoid battling them in the next year,"
6 there appears the following statement in the second
7 paragraph, quote,
8 "They appear to be moving
9 fast to establish themselves in the
10 value-add app business by leveraging
11 Netscape itself as a platform."
12 Do you recall whether you agreed that
13 that's what Netscape was doing back in June '95?
14 A At this time I had no sense of what
15 Netscape was doing.
16 Q Okay.
17 The next e-mail I want to ask you about
18 is on page 231 of the document, and it's an e-mail
19 from Paul Maritz to various people including yourself
20 regarding the Netscape meeting, and it's dated June
21 5, 1995.
22 A How did you find that?
23 MR. HEINER: You have to go
24 surprisingly the opposite direction.
25 MR. NEUKOM: You have to go by Bates
102
1 numbers.
2 THE WITNESS: Yeah. If you just use
3 those numbers, those numbers are sequential.
4 MR. BOIES: 9594.
5 THE WITNESS: 237? Okay.
6 MR. HEINER: No. Which one?
7 MR. HOUCK: 231. Page 231. Bates No.
8 594. I'll take your eminent counsel's suggestion,
9 and refer to it by Bates number, make it a little bit
10 easier.
11 Q Here Mr. Maritz reports that he did not
12 get the impression from the meeting he had that
13 Netscape was ready for a broad, strategic
14 relationship.
15 Do you see that?
16 A Do you think that refers to a meeting
17 he had? I don't think so.
18 Q Let me refer you to page 596, Bates No.
19 596.
20 A Okay.
21 Q It's e-mailed the same date. And it
22 says,
23 "Attached is my summary of the meeting that
24 Nathan, Paul and I had with Jim Barksdale of
25 Netscape."
103
1 Do you understand the reference of Paul
2 to be a reference to Paul Maritz?
3 A Oh, maybe he is talking about a meeting
4 he had.
5 Q Do you have any recollection of
6 discussing Mr. Maritz's impression of this meeting
7 with Netscape?
8 A I didn't think Paul had met with
9 Netscape.
10 Q So you have no present recollection of
11 discussing with Mr. Maritz his views based on a
12 meeting he had with Mr. Barksdale in or about the
13 early part of June 1995?
14 A No.
15 Q Let me refer you next to a Bates No.
16 page 585. And this is an e-mail to you and others
17 from Dan Rosen regarding a Netscape meeting, and the
18 date of the e-mail is June 22, 1995. It's page 585
19 Bates number.
20 You got it?
21 A Uh-huh.
22 Q Do you want to look at the e-mail first
23 before I ask you some questions, or do you want me to
24 proceed?
25 A Go ahead.
104
1 Q Do you recall getting this particular
2 e-mail?
3 A No. I recall getting this e-mail from
4 Brad Silverberg on 584 but not this one from Dan
5 (indicating).
6 Q And you have no reason to believe you
7 didn't get it; is that correct?
8 A That's right. I'm still confused if it
9 actually was enclosed in the other one or not. From
10 the way it's printed out, it may have been. And
11 although my name is there, I don't remember getting
12 that one. I do remember getting this one which it
13 may also be an enclosure to.
14 Q Do you understand this to be Mr.
15 Rosen's report on the meeting he had on June 21,
16 1995, with Netscape executives?
17 A It looks like it. The thing I recall
18 is the Reardon --
19 Q Right.
20 A What he calls his perspective that Brad
21 sent to me.
22 Q Right. Did you understand that
23 Mr. Reardon had a somewhat different perspective on
24 the meeting than Mr. Rosen had?
25 A Yes.
105
1 Q Who was the senior Microsoft executive
2 at the June 21st meeting?
3 A There were no senior executives at that
4 meeting.
5 Q Who was the most senior of the people
6 there?
7 A You would have to tell me who was at
8 the meeting. I have no idea who was at the meeting.
9 Q Did you understand that Dan Rosen was
10 at the meeting?
11 A Apparently from this e-mail, yes.
12 Q Did you understand that Tom Reardon was
13 at the meeting?
14 A From his e-mail, yes.
15 Q Did you understand that Jim Allard was
16 at the meeting?
17 A Jim who?
18 Q Allard.
19 A Jay Allard?
20 Q Jay Allard, yeah.
21 A I don't know.
22 Q How about Chris Jones?
23 A I don't know. Does one of these list
24 who was at the meeting?
25 Q Let me just ask you: Do you have any
106
1 recollection as you sit here as to who you were told
2 attended the meeting on behalf of Microsoft other
3 than Mr. Reardon?
4 MR. HEINER: Can I have the question
5 read back?
6 (Question read.)
7 MR. HEINER: Objection. Foundation.
8 THE WITNESS: I'm not certain what you
9 mean, "told."
10 Q BY MR. HOUCK: Were you informed,
11 Mr. Gates, who attended the meeting on behalf of
12 Microsoft?
13 A I don't think so.
14 Q Do you have any understanding, as you
15 sit here today, who attended that meeting on behalf
16 of Microsoft?
17 A Well, the last page of the thing you
18 gave me on 599 might relate to that. But I don't
19 have any prior knowledge about it.
20 Q The e-mail from Mr. Rosen on the first
21 page says, quote,
22 "Our goals going into the
23 meeting were (in priority order):
24 "1. Establish Microsoft
25 ownership of the Internet client
107
1 platform for Win95.
2 "2. Have Netscape add value
3 to the NT server and Back Office
4 platform (above our stuff), making it
5 the preferred Internet solution.
6 "3. Have Netscape
7 preferentially support Microsoft
8 authoring tools/solutions and support
9 our viewers.
10 "4. Send a message to the
11 marketplace that Netscape and
12 Microsoft were cooperating on
13 Internet issues."
14 Do you recall discussing these goals
15 with any of the Microsoft people who attended the
16 meeting in advance of the meeting?
17 A No.
18 Q The next page of the e-mail says,
19 "Chris Jones summed up the
20 purpose nicely: 'We need to
21 understand if you will adopt our
22 platform and build on top of it or if
23 you are going to compete with us on
24 the platform level.'"
25 Did you understand that was a principal
108
1 purpose of Microsoft in attending this meeting with
2 Netscape?
3 MR. HEINER: Objection.
4 THE WITNESS: No. It says in the Rosen
5 memo the purpose of the meeting was to scope out
6 specific areas that the relationship between the two
7 companies might take and to set in place a process to
8 either conclude a strategic relationship or go our
9 separate ways.
10 Q BY MR. HOUCK: Do you have any present
11 recollection as you sit here as to what the purpose
12 of the Microsoft executives was in attending the
13 meeting?
14 A Well, there were no Microsoft
15 executives in the meeting.
16 Q You don't consider Mr. Rosen a
17 Microsoft executive?
18 A No. Inside Microsoft -- I don't know
19 about other companies -- but the VPs are called
20 executives and the non-VPs are called non-executives,
21 and there were no executives at that meeting.
22 Q Let me rephrase the question then.
23 Do you have any understanding as you
24 sit here today as to what the purpose was of the
25 Microsoft employees who attended the meeting with
109
1 Netscape on June 21, 1995?
2 A I can read to you from the stuff you've
3 given me here.
4 Q I don't want you just to read, I'm
5 asking for your present recollection if you have one.
6 I can read the document myself.
7 A I don't know what you mean my present
8 recollection.
9 Q As you sit here today, do you have any
10 recollection as to what your understanding was back
11 in June 1995 as to the principal purpose of the
12 Microsoft employees in the meeting with Netscape?
13 A I wasn't involved in setting up the
14 meeting, so I -- I can see what Reardon said here, I
15 can see what Rosen said here. You've read something
16 that purports to be something that Jones said. I
17 mean --
18 Q As we discussed before, did you
19 understand that Mr. Reardon and Mr. Rosen had
20 different perspectives on the meeting?
21 A Well, I -- I got some e-mail from Brad
22 Silverberg after the meeting that showed that Reardon
23 seemed to have a more realistic view of what was
24 going on.
25 Q Did you share his view?
110
1 MR. HEINER: Objection.
2 THE WITNESS: I hadno view whatsoever.
3 Q BY MR. HOUCK: When you said Reardon
4 had a more realistic view of the meeting, can you
5 explain what you meant?
6 A Well, Reardon's mail says,
7 "Maybe I am being a dick,
8 but there is no deal here. If we are
9 smart and deft and engaged at the
10 right levels, we have a chance to
11 cooperate on a few of these smaller
12 things."
13 So usually the -- if you have two
14 people that go to a meeting and one comes back and
15 says "Looks great," and the other comes back and says
16 "It doesn't look good," my business experience is the
17 person who says that it doesn't look good is probably
18 the one who has the most accurate view of the
19 meeting, particularly when you're dealing with Thomas
20 Reardon and Dan Rosen.
21 Q So you thought that Reardon's view of
22 how the meeting went was likelier the more accurate
23 one?
24 A In the sense that it didn't look like
25 much would come out of it, yes.
111
1 Q Okay.
2 Do you recall, as you sit here today
3 apart from just reading these e-mails, anything that
4 was reported back to you by any of the participants
5 from Microsoft at this June 21st meeting?
6 A Well, I think somewhere about this time
7 somebody said to me that -- asked if it made sense
8 for us to consider investing in Netscape. And I said
9 that that didn't make sense to me, I didn't see that
10 as something that made sense.
11 Q Do you recall who said that to you?
12 A It would have been probably suggested
13 in a piece of e-mail from Dan, I think.
14 Q Do you recall when you got that
15 suggestion, whether it was before or after the
16 meeting?
17 A Oh, it would have been after the
18 meeting.
19 Q Do you recall anything else that anyone
20 told you back in June '95 about the meeting?
21 A No.
22 Q Did you personally devote time,
23 Mr. Gates, to studying Netscape and trying to
24 determine what their sources of revenue were?
25 A In what time frame are we talking
112
1 about?
2 Q Well, do you recall doing that at all?
3 A I personally didn't make any study of
4 it. But I know that in late '95 when we reviewed a
5 bunch of different competitors, one of those was
6 Netscape, and there was some revenue analysis done as
7 part of that.
8 Q Do you recall an employee at Microsoft
9 by the name of Amar Nehru?
10 A I know Amar.
11 Q Did he work for you directly?
12 A Never.
13 Q Who did he work for?
14 A He's at least five levels below me, and
15 I have no idea who he works for.
16 Q Do you recall that he worked for
17 Mr. Chase?
18 A I'm certain that he did not.
19 Q Let me mark as exhibit --
20 A Are you talking -- what's the last name
21 of Amar?
22 Q It's Amar Nehru.
23 A Yeah. He did not.
24 Q N-e-h-r-u.
25 Mark as Exhibit 352 an e-mail from
113
1 Mr. Gates to Amar Nehru.
2 (The document referred to was marked by
3 the court reporter as Government's Exhibit 352 for
4 identification and is attached hereto.)
5 MR. HOUCK: I think I marked the wrong
6 document, but we'll probably get that at some point.
7 I apologize. So let me mark as the next exhibit,
8 Exhibit 353 -- strike what I said, I think we do have
9 the right document, and I apologize for the
10 confusion.
11 Okay. I gave you the wrong document.
12 Let me mark as Exhibit 353 the December 1, 1996
13 e-mail. I apologize once more.
14 THE WITNESS: December 1, 1996?
15 MR. HOUCK: Yeah.
16 THE WITNESS: Oh, is this something I
17 haven't seen?
18 MR. HOUCK: Yes. And I apologize.
19 There were a couple of e-mails from Mr. Nehru -- or
20 to Mr. Nehru, I gave you the wrong one, I don't want
21 to ask you about that one right now. So what I want
22 to ask you about is Exhibit 353, and this is a
23 December 1, 1996 e-mail from you to Mr. Nehru.
24 (The document referred to was marked by
25 the court reporter as Government's Exhibit 353 for
114
1 identification and is attached hereto.)
2 Q BY MR. HOUCK: Do you recall asking
3 Mr. Nehru in or about December 1996 to collect for
4 you information about Netscape revenues?
5 A No.
6 Q Do you recall sending this e-mail on or
7 about December 1, 1996 to Mr. Nehru?
8 A No.
9 Q Okay.
10 Do you recall receiving from Mr. Nehru
11 the attached e-mail dated November 27, 1996?
12 A From time to time we do reviews of
13 various competitors, and at least one point in time
14 Netscape was one of the people that we looked at. So
15 it doesn't surprise me, but I don't remember it
16 specifically.
17 Q On the second page of the exhibit,
18 which is part of Mr. Nehru's November 27, 1996
19 e-mail, he talks about browsers.
20 A What page?
21 Q Page 2.
22 A Okay.
23 Q He identifies there sources of
24 Netscape's revenue. He says,
25 "Browser revenue for the
115
1 quarter amounted to $45 million (a 32
2 percent increase over the last
3 quarter) representing 60 percent of
4 total Netscape revenue."
5 Do you have any reason to doubt the
6 accuracy of the information reported there?
7 A Well, I know that Mr. Nehru didn't work
8 for Netscape, so I'm sure he didn't have access to
9 the figures directly. If you're interested in that,
10 you should ask Netscape.
11 Q Was this the best information you had
12 in December of 1996 as to the proportion of
13 Netscape's revenue that was derived from browsers?
14 A I don't know.
15 Q Do you recall receiving any other
16 information than this on that subject?
17 A I might have seen an analyst report.
18 It says here we're 70 percent confident
19 about our numbers.
20 Q Do you recall why it was in this time
21 frame you had asked Mr. Nehru to collect this
22 information for you?
23 A I don't think I did. I already told
24 you that.
25 Q You have no recollection of asking him
116
1 for this information?
2 A I'm quite certain I wasn't the one who
3 asked for the information.
4 Q Do you have any recollection as to who
5 did?
6 A Perhaps Steve.
7 Q Steve, you mean Steve Ballmer?
8 A Uh-huh.
9 Q In your memo here -- strike that.
10 In your e-mail here you say, "What kind
11 of data do we have about how much software companies
12 pay Netscape?"
13 Do you recall asking that question to
14 Mr. Nehru in or about December 1996?
15 A It looks like I sent him that question
16 after he sent out one of these competitive analysis
17 reports.
18 Q Do you recall -- strike that.
19 Do you have any reason to believe you
20 didn't ask him for this information on December 1,
21 1996?
22 A Now, wait a minute. Now, you're
23 confusing two things. There's the information here
24 enclosed which I didn't ask him for.
25 Q I understand.
117
1 A And that's what you've been asking me
2 about earlier.
3 Q No, sir.
4 A Then there's the question here in my
5 e-mail, I have no idea if he ever responded to that,
6 but that question certainly looks like it came from
7 me. But that's different than --
8 Q I understand. I'm not confused.
9 A Okay.
10 Q Let me straighten the record out here.
11 Your testimony, as I understand it, is
12 you believe that in all likelihood the information
13 initially collected by Mr. Nehru was sought by
14 Mr. Ballmer; is that right?
15 A I know it wasn't -- I'm pretty sure it
16 wasn't me who asked for it.
17 Q Correct. And then you got this e-mail
18 from Mr. Nehru and you in turn asked him what kind of
19 data do we have about how much software companies pay
20 Netscape; is that right?
21 A That's part of the e-mail I sent to him
22 it looks like, yes.
23 Q Okay.
24 The -- Exhibit 353, in particular
25 Mr. Nehru's memo, says his conclusion was of the $45
118
1 million in revenue obtained that quarter by Netscape
2 as a result of the browsers ISPs commanded the
3 largest share at 40 percent of browser revenue.
4 Did you have any reason to doubt the
5 accuracy of that information obtained by Mr. Nehru?
6 A Well, I'll say two things about that:
7 First of all, he's not including the
8 prime -- when he gives that number he's not including
9 the primary browser revenue source which is what was
10 called service revenues in this report; that is,
11 taking the ad space in the browser, which is proven
12 to be the biggest source of revenue and a significant
13 source of revenue for browsers, he's not including
14 that in. So that would be a rather significant
15 change.
16 Also, although I haven't had a chance
17 to read his entire e-mail, it says that his
18 confidence in these numbers is about what he says 70
19 percent.
20 So clearly, there are people at
21 Netscape who would be 100 percent sure about the
22 numbers.
23 Q Do you know what, if any, service
24 revenue Netscape was earning from its browsers in or
25 about the first quarter of 1996?
119
1 A No, I don't.
2 Q Was Microsoft earning any service
3 revenue on its browsers the first quarter of 1996?
4 A In the first quarter of 1996? No.
5 That developed into a large business subsequently in
6 our case.
7 Q Do you know whether Netscape was any
8 different or not?
9 A Well, it's a measurable business for
10 them. You can just read what I say in the mail.
11 Q Do you know how that source of
12 revenue -- strike that.
13 Why don't we just take a very short
14 break.
15 MR. HEINER: Okay.
16 THE VIDEOGRAPHER: The time is 1:32.
17 We're going off the record.
18 (Recess.)
19 THE VIDEOGRAPHER: The time is 1:47.
20 We're going back on the record.
21 MR. HEINER: During the break I checked
22 with our people who do document productions about
23 Exhibit 351 and asked them what these page numbers
24 are at the bottom of the pages. And they said that
25 we found these documents instead of archives so we
120
1 went back and searched in connection with the current
2 case. So these were documents that were actually
3 printed out back for some other case, presumably in
4 1995 or something like that.
5 And when we printed the documents they
6 would just page number every single page.
7 So the documents -- and then we
8 produced the responsive documents. So pages --
9 whatever pages are missing here are e-mail about any
10 subject under the sun.
11 And then that also tells you that
12 whether or not we produced these stapled, they
13 probably shouldn't be stapled. It's really
14 individual e-mail strings.
15 MR. HOUCK: Okay.
16 MR. HEINER: For what it's worth.
17 MR. HOUCK: I would like to mark as
18 Exhibit 354 an e-mail from Mr. Gates to various
19 people dated May 19, 1996, on the -- and the subject
20 is "Some thoughts on Netscape."
21 (The document referred to was marked by
22 the court reporter as Government's Exhibit 354 for
23 identification and is attached hereto.)
24 Q BY MR. HOUCK: Is Exhibit 354 a
25 memorandum you prepared on or about May 1996?
121
1 A It looks like it is. I don't have a
2 specific recollection.
3 Q On the second page under the heading
4 "Netscape" you say,
5 "During this Thinkweek I had
6 a chance to play with a number of
7 Netscape products. This reenforced
8 the impression that I think all of us
9 share that Netscape is quite an
10 impressive competitor."
11 Do you recall what it was that led you
12 to the conclusion that Netscape was an impressive
13 competitor?
14 A I think the memo speaks for itself in
15 terms of outlining that.
16 Q Did you come to believe that their
17 products would be popular with consumers?
18 A That's a very vague question.
19 Q Can you answer it or not?
20 A In its current vague form? No.
21 Q Did you come to the conclusion that
22 Netscape had high quality products in or about this
23 time frame?
24 A Not all of their products but some of
25 them.
122
1 Q Which products did you believe were of
2 high quality?
3 A Well, the memo gets into that. I'm
4 glad to read it.
5 Q Do you have any additional recollection
6 as you sit here apart from just reading the
7 memorandum?
8 A No.
9 Q Was it your understanding that in or
10 about this time frame Netscape sought to generate
11 revenue by charging money for its browser?
12 A That's kind of a complex area because,
13 in fact, they didn't really charge people for the
14 browser. If you wanted to just download it and use
15 it, they never followed up and charged anyone.
16 So as I show in the memo, one of the --
17 when it's under "Their price," I show "Free."
18 Q You also show $49; correct?
19 A Yeah. It says "$49 & free." 49 was
20 the nominal price which no one had any reason to pay
21 at all.
22 Q Did you understand from Mr. Nehru
23 and/or other people at Microsoft that, in fact,
24 Netscape was generating revenue by sales of its
25 browser?
123
1 A Nothing significant, I think, came out
2 of that $49 offering. They had a retail value at an
3 offering at a different price, and they had some
4 corporate licensing. But in terms of the $49, I
5 don't know of any data that I had that would suggest
6 that that was something people were paying.
7 Q Do you have any recollection at all as
8 you sit here today of receiving any data that
9 indicated how much revenue Netscape was generating
10 through sales of its browser at a $49 price?
11 A Well, I know they were getting revenue
12 from the Search button and the Home Page hits
13 essentially advertising fees. And I had seen some
14 data about that.
15 Q Did you see any data at all with
16 respect to how much money was being generated by
17 sales of the browser?
18 A I just said I saw some data about
19 revenue they got from essentially the advertising
20 sales.
21 Q Right.
22 Do you recall seeing any data with
23 respect to revenue generated from sales of the
24 browser itself?
25 MR. HEINER: Is this any particular
124
1 time, any particular channel?
2 MR. HOUCK: In or about this time
3 period, which is May of 1996.
4 MR. HEINER: And is the question about
5 the $49 retail offering?
6 MR. HOUCK: Correct.
7 THE WITNESS: I don't think that $49
8 retail offering is very popular. The particular memo
9 that you've got in front of me here is -- doesn't
10 relate much to that. It's talking more about the
11 different products and Microsoft plans to have better
12 products.
13 MR. HOUCK: Move to strike that answer
14 as nonresponsive.
15 Q As you sit here today, Mr. Gates, do
16 you have any recollection of receiving data that
17 purported to show how much, if any, revenue was being
18 generated by Netscape through sales of its web
19 browser at retail?
20 A The $49 product?
21 Q Can you answer the question?
22 MR. HEINER: Asked and answered.
23 THE WITNESS: Which SKU?
24 MR. HOUCK: The $49 product.
25 THE WITNESS: I don't remember any
125
1 specific data. But as to that SKU, I'm -- I don't
2 think their sales were ever significant.
3 Q BY MR. HOUCK: The next -- strike that.
4 On Bates No. page 954 appears the
5 heading "Browser War."
6 Do you see that?
7 A Uh-huh.
8 Q What did you mean by your use of that
9 phrase?
10 A I think somebody -- I wasn't the one
11 who created that phrase. I think it was a phrase
12 that some people had used to refer to the competition
13 in the browser space including that between us as the
14 provider of Windows and Netscape with Navigator.
15 Q Under the heading of your memo entitled
16 "Browser War" appears the following statement:
17 "If we continue to have
18 minimal share in browsers, a lot of
19 our other efforts will be futile."
20 Do you recall what other efforts you
21 had in mind there?
22 A Well, for example, our desire to get
23 advertising revenue from the Search button and the
24 Home Page in the browser.
25 Q Do you recall anything else you had in
126
1 mind?
2 A I don't know if Blackbird had been
3 canceled by this point or not. But since it was a
4 superset browser, it would have fit that category.
5 Q Anything else?
6 A Well, MSN, our online service, because
7 of its dependency on the Blackbird technology.
8 Q Do you recall any other efforts that
9 you had in mind here?
10 A No.
11 Q You go on to say, quote,
12 "By the end of the year we
13 have got to get more than 25 percent
14 share so we are taken seriously,"
15 close quote.
16 Do you recall why you came to that
17 conclusion?
18 A I don't remember what I was thinking at
19 the time I wrote the memo.
20 Q Do you recall who you had in mind as
21 taking you seriously?
22 A At the time I wrote the memo?
23 Q Yes.
24 A No I don't recall.
25 Q That paragraph concludes with your
127
1 statement as follows, quote,
2 "I'm very excited that we
3 are going to incent OEMs to focus
4 their efforts around IE."
5 IE is a reference, I take it, is a
6 reference to Internet Explorer; is that correct?
7 A It looks like it's referring to IE3
8 there.
9 Q Do you recall what it was you were
10 going to do to incent OEMs to focus their efforts
11 around Internet Explorer 3.0?
12 A We did something where we encouraged
13 them to pick up the Windows Update that included the
14 improvements in the IE technology that took us from
15 IE2 which had been included, of course, in Windows
16 for quite some time.
17 We -- in the normal course, it takes
18 OEMs six to nine months before they get updates
19 widely available. And I think there was a plan to
20 incent them to update their Windows bits on their
21 machines more rapidly than normal so that users would
22 have a chance to get IE3 on the machine instead of
23 IE2, which although it had been a part of Windows,
24 had not received measurable market share.
25 Q Your memo concludes with the following
128
1 statement:
2 "At some point financial
3 minded analysts will begin to
4 consider how much of a revenue stream
5 Netscape will be able to generate."
6 Do you recall what your thinking was in
7 noting this to the other recipients of the memo?
8 A Well, this memo, if you look at it, is
9 not really about financial issues at all. It's about
10 the good work we're doing in various software
11 categories relative to some of the work that
12 Netscape's doing. And I wouldn't call it a
13 conclusion, but there's a paragraph there in the end
14 that talks about Netscape revenue.
15 I don't have any recollection about
16 what I was thinking when I wrote that paragraph at
17 this point.
18 Q Of what significance was it to you what
19 financial analysts concluded about Netscape's revenue
20 stream?
21 A Netscape was a competitor of ours and
22 we actually pay attention to our competitors' revenue
23 since it's a measure of the popularity of their
24 products and we can compare how we're doing in
25 customer popularity with how they're doing sometimes
129
1 by looking at revenue. Sometimes that doesn't work.
2 But it's -- I think it's -- it's typical to know
3 what -- what our revenue is.
4 Q Do you generally make public comments
5 about the financial health or welfare of Microsoft's
6 competitors?
7 A I'm often asked about various
8 companies, and I respond to questions. But I've
9 never given a presentation that had that focus.
10 Q Do you recall making public statements
11 in mid-1996 calling into question Netscape's
12 financial viability?
13 A I may have been asked questions about
14 that by the press, but I didn't go out and make any
15 speeches or statements about it.
16 Q I'd like to mark as Exhibit 355 a copy
17 of an article that appears in The Financial Times of
18 London dated July 3, 1996.
19 (The document referred to was marked by
20 the court reporter as Government's Exhibit 355 for
21 identification and is attached hereto.)
22 Q BY MR. HOUCK: The next to the last
23 page of Exhibit 356 appears the following quote,
24 "'Our business model works
25 even if Internet software is free,'
130
1 says Mr. Gates. 'We are still
2 selling operating systems.'
3 Netscape, in contrast, is dependent
4 upon its Internet software for
5 profits, he points
6 out."
7 Do you recall making statements to this
8 effect to The London Financial Times in or about July
9 1996?
10 A I'm quite sure I didn't make a
11 statement. I think I was interviewed by Louise Kehoe
12 where she kept saying to me how various people were
13 predicting, including Netscape, that we would go out
14 of business because of the Internet and that we were
15 doomed because of the Internet.
16 Q Do you recall in or about July 1996
17 providing the information attributed to you here to
18 the reporter for The London Financial Times?
19 A I don't know what you mean "providing
20 the information."
21 Louise Kehoe is a reporter. She
22 interviewed me about this time with the proposition
23 that we were on our way out of business. And I said
24 to her, "If we didn't do a good job for our customers
25 in terms of what they wanted, that would be the case,
131
1 but that we thought we could do -- do good work
2 around the new scenarios that customers were
3 interested in."
4 MR. BOIES: Move to strike the answer
5 as nonresponsive.
6 Q BY MR. HOUCK: Do you recall,
7 Mr. Gates, giving the quotation imputed to you here
8 to Ms. Kehoe?
9 A Well, the best -- I don't recall this
10 specific interview. It would be valuable to
11 understand what her questions were and what the
12 sequence of questions were. She probably has a tape
13 of that that you could get.
14 Q Do you have any reason to believe that
15 she has inaccurately quoted you here in her article?
16 A I know it was an interview where the
17 basic supposition was that Netscape and others were
18 going to put us out of business. That much I recall.
19 But in terms of the specific quote, I'm not sure.
20 Q When you say you're not sure, do you
21 mean -- strike that.
22 Do you have any reason, as you sit here
23 today, to believe that this statement attributed to
24 you is improperly reported by Ms. Kehoe?
25 A I think if you want to understand what
132
1 I said in the interview with her, you should get the
2 transcript of it and understand what series of
3 questions -- what the context was for anything that I
4 said.
5 Q Sir, do you deny making the statement
6 attributed to you here?
7 A I think it was in the context of some
8 fairly aggressive questions about was my company
9 going to go out of business in the near future. And
10 I think it's -- it's valuable to know that context
11 whenever you look at an answer somebody gives to a
12 question.
13 Q Well, can you answer my question "yes"
14 or "no"?
15 Read the question back to him, please.
16 (The following question was
17 read:
18 "Q Sir, do you deny making
19 the statement attributed to you
20 here?")
21 THE WITNESS: I'm not denying making
22 the statement, but I am pointing out that I didn't
23 just make a statement. I was in an interview with a
24 reporter, and it would be valuable to understand her
25 questions. And I do recall the general tenure of
133
1 those questions. And so if your interest is
2 understanding the quote, understanding that context
3 is, I think, quite valuable.
4 Q You understood, did you not, Mr. Gates,
5 that people interested in the computer business
6 followed very carefully what it was you said about
7 the future of the business?
8 A That's quite a vague question.
9 Q You've appeared on covers of various
10 magazines; correct?
11 A My picture has.
12 Q Right. And is it not your
13 understanding that many newspaper reporters and
14 financial analysts are very interested in getting
15 your views on future developments in the computer
16 business?
17 A I've never done anything that would
18 give me any measurement of that.
19 Q You have no understanding whatsoever?
20 A I know I've been interviewed a lot of
21 times. I mean, when you say "popularity," help me
22 understand what sort of answer you want. Do you want
23 a number?
24 Q You just answered when you made
25 statements like this about Netscape that had the
134
1 potential to affect Netscape's stock price?
2 A I've told you several times that I
3 object to your using the word "statement" to refer to
4 the interview.
5 Q When you gave quotations like this to
6 financial analysts and reporters, you understood, did
7 you not, that statements like this could have a
8 negative impact on Netscape's stock price?
9 A I participated in an interview with
10 Louise Kehoe, and I explained why her basic
11 proposition that we were going -- going to go out of
12 business soon wasn't necessarily the case.
13 And so the focus of the interview was
14 certainly on Microsoft and our future, our lack of a
15 future. She's not a financial analyst, she's a
16 reporter.
17 Q Okay. Move to strike.
18 Would you read the question to him
19 again. And I'll ask you if you could answer the
20 question, Mr. Gates.
21 (The following question was read:
22 "When you gave quotations
23 like this to financial analysts and
24 reporters, you understood, did you
25 not, that statements like this could
135
1 have a negative impact on Netscape's
2 stock price?")
3 THE WITNESS: I don't know what you
4 mean "quotations like this."
5 Q BY MR. HOUCK: When you gave this
6 particular quotation to Ms. Kehoe, did you consider
7 that it might have a negative impact on Netscape's
8 stock price?
9 A It certainly was not in any way a
10 consideration of my defending Microsoft in this
11 particular interview.
12 Q Did you understand, sir, that
13 application vendors would be less likely to write
14 applications for a browser marketed by a company that
15 did not have long-term prospect for financial
16 viability?
17 A I've been quoted many times as talking
18 about Netscape as a company that has a good future.
19 And, you know, I'm -- when I've been directly asked
20 about that, I've said that they're in an exciting
21 field and have lots of opportunity.
22 MR. HOUCK: Move to strike the answer
23 as nonresponsive.
24 Q Do you recall any other statements --
25 strike the word "statements" since you don't like it.
136
1 Do you recall any other quotations
2 attributed to you, Mr. Gates, in the press with
3 respect to your views of Netscape's financial
4 viability?
5 A Well, I was at MIT and -- meeting with
6 the W3C people, and I spoke in front of some
7 students. And a student asked what would I think
8 about him going and taking a job at Netscape. And I
9 said I thought that would be an interesting thing and
10 that Netscape had a lot of opportunities, and I
11 subsequently saw that quoted in the press. So I
12 remember that as one example.
13 Q Anything else?
14 A I don't recall any other specific times
15 when I was questioned about Netscape.
16 Q Do you recall making statements to the
17 press to the effect that Microsoft did not need to
18 make any revenue from its Internet software to be
19 successful as a company?
20 A Well, I don't know what you mean -- you
21 see, that's the -- I'm not sure what you mean by
22 "Internet software." What of our products? Could
23 you designate for me which ones you mean as being
24 Internet software?
25 Q I'm going to get marked as Exhibit
137
1 357 -- 356. I'm going to have marked as Exhibit 356
2 a copy of a story from the Business Week dated July
3 15, 1996.
4 (The document referred to was marked by
5 the court reporter as Government's Exhibit 356 for
6 identification and is attached hereto.)
7 Q BY MR. HOUCK: Exhibit 356 on the
8 second page contains the following statement,
9 quote -- which is attributed to you,
10 "'One thing to remember
11 about Microsoft,' says Chairman
12 William H. Gates III, 'We don't need
13 to make any revenue from Internet
14 software.'"
15 Can you tell me what you had in mind
16 there when you referred to Internet software?
17 MR. HEINER: Objection. Foundation.
18 THE WITNESS: So what was the question?
19 MR. HOUCK: Well, let me withdraw the
20 question and ask you.
21 Q Do you have any reason to doubt that
22 you made a statement to this effect to a Business
23 Week reporter?
24 A I'm pretty sure I wasn't interviewed by
25 Business Week for this article, so I think it's an
138
1 indirect quote of some kind.
2 Q Do you recall publicly stating that one
3 thing to remember about Microsoft was that it didn't
4 need to make any revenue from Internet software?
5 A As I told you earlier, I never
6 commented on Netscape or their prospects in a speech
7 or a statement. The only time where that ever came
8 up, I'm quite sure, is when reporters would push on
9 the fact that maybe Microsoft was about to be put out
10 of business by the Internet and various things going
11 on relative to the Internet. So there -- I mean,
12 there was no statement like that. There may have
13 been an answer along those lines, but I don't think I
14 can recall specifically.
15 Q Do you have any reason to doubt that
16 the quotation attributed to you is accurate?
17 A No. I think there's something strange
18 because I'm pretty sure I wasn't interviewed for this
19 article. I've never been interviewed by Robert Hof
20 who is the author, and I think I'd remember if I had
21 been interviewed for this article.
22 Q Did you believe that the Internet
23 threatened to put Microsoft out of business?
24 A There were a lot of things, including
25 the move to the Internet, that if Microsoft doesn't
139
1 do a lot of innovative work means that our revenue
2 will drop to zero.
3 Q Did you ever come to the point where
4 you seriously reached the conclusion that
5 Microsoft's -- Microsoft was likely to be put out of
6 business by the Internet?
7 A Our risk of being put out of business
8 has been a constant feeling for me ever since we've
9 been in business.
10 Q The Business Week article that we've
11 been looking at says that:
12 "Microsoft's expected fiscal
13 1996 sales were on the order of $8.6
14 billion with $2 billion in aftertax
15 profits."
16 Is that approximately correct?
17 A I'm not sure. There's a lot of ways to
18 get those figures.
19 Q Do you have any understanding what
20 Microsoft's 1996 revenues were?
21 A No.
22 Q Do you have any estimate, as you sit
23 here today, as to what Microsoft's aftertax profits
24 were in 1996?
25 A No.
140
1 Q Were they on the order of $2 billion
2 approximately?
3 A I told you I don't know.
4 Q You have no way of estimating what they
5 were -- strike the question.
6 What's your best estimate of what
7 the -- Microsoft's aftertax profits were in fiscal
8 year 1996?
9 A I don't think it's good to guess
10 because it would be very easy to go get the real
11 figure.
12 Q And you'd have to guess; is that right?
13 A If you don't let me get the real
14 figure, then I would have to guess. But if you give
15 me a few minutes I can go get the real figure. So if
16 you're at all interested in the facts, just give me a
17 few minutes.
18 Q I am. So go ahead, go get it.
19 A Okay.
20 MR. HEINER: Take a break.
21 THE VIDEOGRAPHER: The time is 2:23.
22 We're going off the record. This is the end of Tape
23 2 of the deposition of Bill Gates:
24 (Recess.)
25 THE VIDEOGRAPHER: The time is 2:32.
141
1 We're going back on the record. This is Tape 3 of
2 the videotaped deposition of Bill Gates.
3 Q BY MR. HOUCK: Mr. Gates, were you able
4 to obtain the information you were looking for?
5 A Yeah. It looks like the numbers given
6 in the Business Week article, the sales and profit
7 numbers are accurate.
8 Q We've seen a number of references in
9 documents we've looked at to browser share. And
10 you've been quoted as saying, "We wake up in the
11 morning thinking browser share."
12 Do you recall that quotation?
13 A No.
14 Q I'd like to have marked as Exhibit 357
15 an article from PC Magazine Online dated March 13,
16 1996.
17 (The document referred to was marked by
18 the court reporter as Government's Exhibit 357 for
19 identification and is attached hereto.)
20 Q BY MR. HOUCK: Exhibit 357, Mr. Gates,
21 is a report on a keynote speech you gave at the San
22 Francisco Microsoft Developers Conference.
23 Do you recall giving a speech in that
24 conference?
25 A Yeah. I spoke there.
142
1 Q It quotes you as saying, "We wake in
2 the morning thinking browser share."
3 Do you recall saying that?
4 A It's reasonably illiterate. I'd have
5 to look at the transcript. It's not typical for me
6 to be illiterate.
7 Q Do you deny making the statement
8 attributed to you here, Mr. Gates?
9 A It's very possible I made a statement
10 to this effect in a more literate form, but the
11 transcript's available.
12 Q Isn't it a fact that winning a browser
13 share was a very important goal for Microsoft in
14 1996?
15 A We were measuring web usage share to
16 see how popular browser was. And we had -- one of
17 our goals was to increase that.
18 MR. HOUCK: I'd like to mark as Exhibit
19 358 an e-mail from Mr. Gates to Joachim Kempin dated
20 January 5, 1996.
21 (The document referred to was marked by
22 the court reporter as Government's Exhibit 358 for
23 identification and is attached hereto.)
24 Q BY MR. HOUCK: Do you recall writing
25 this e-mail, Mr. Gates, on or about January 5, 1996?
143
1 A No.
2 Q Do you have any reason to doubt you
3 wrote it?
4 A No.
5 Q First sentence says, quote, "Winning
6 Internet browser share is a very important goal to
7 us," close quote.
8 Why did you believe that to be the case
9 in January of 1996?
10 A Are you asking me to reconstruct my
11 state of mind on January 5th?
12 Q Do you recall why it was, Mr. Gates,
13 that in the beginning of 1996 you came to believe
14 that winning Internet browser share was a very
15 important goal for Microsoft?
16 A I can't say for sure what I was
17 thinking at the time, but I can explain to you why it
18 makes sense to me that I would have written this
19 mail.
20 Q Am I correct that you have no present
21 recollection of what it was specifically that led you
22 to this conclusion back in January, 1996?
23 A I don't remember my exact thinking in
24 January 1996.
25 Q Okay.
144
1 A I can explain my general recollection
2 of that time period, but I can't reconstruct what I
3 was thinking when I wrote the mail.
4 Q What is your general recollection of
5 the time period?
6 A We thought that people -- the usage of
7 the Internet was increasing, and it was important for
8 us to build a browser with better features including
9 integration that would be attractive enough that
10 people would choose to use it.
11 Q Who was Microsoft's principal
12 competitor for browser share in January of 1996?
13 A I think at that stage Netscape had 80
14 to 90 percent usage share which is a particular way
15 of measuring browser hits.
16 Q Is it your understanding that the
17 percentage of the PC system price attributable to the
18 operating system has risen in recent years?
19 MR. HEINER: Objection. Vague and
20 ambiguous.
21 THE WITNESS: I'm not sure which of our
22 products you're asking me about.
23 Q BY MR. HOUCK: Have you seen any
24 studies at Microsoft comparing the trend of pricing
25 with respect to PC systems to the price Microsoft
145
1 charges for its operating system products?
2 A No. I've seen a comparison of our
3 operating system prices with other people's operating
4 system prices.
5 Q I'd like to mark as Exhibit 359 a chart
6 entitled "PC Value Analysis" dated March 4, 1996.
7 (The document referred to was marked by
8 the court reporter as Government's Exhibit 359 for
9 identification and is attached hereto.)
10 Q BY MR. HOUCK: Do you recall seeing
11 Exhibit 359 before, Mr. Gates?
12 A No. I'm pretty sure I haven't seen it.
13 Q Do you know by whom at Microsoft it was
14 prepared?
15 A No. When I haven't seen something it's
16 very rare for me to know who prepared it.
17 Q Let me mark as Exhibit 360 an e-mail
18 from Mr. Kempin to yourself, Mr. Gates, dated
19 December 16, 1997.
20 (The document referred to was marked by
21 the court reporter as Government's Exhibit 360 for
22 identification and is attached hereto.)
23 Q BY MR. HOUCK: Do you recall receiving
24 Exhibit 360 from Mr. Kempin?
25 A No.
146
1 Q What was Mr. Kempin's position in
2 December of 1997?
3 A He was in charge of our relationship
4 with hardware manufacturers.
5 Q By "hardware manufacturers" you mean
6 OEMs?
7 A That's a shorthand term.
8 Q This e-mail says, "feedback
9 appreciated."
10 I take it you don't recall whether or
11 not you gave him any feedback?
12 A No.
13 Q From time to time does Microsoft do
14 surveys of people known as web professionals?
15 A I don't know.
16 Q I'd like to mark as Exhibit 361 -- I'd
17 like to mark as Exhibit 361 an e-mail from Brad Chase
18 to Bill Gates, Paul Maritz and Steve Ballmer dated
19 September 8, 1997.
20 (The document referred to was marked by
21 the court reporter as Government Exhibit 361 for
22 identification and is attached hereto.)
23 Q BY MR. HOUCK: Does Exhibit 361 refresh
24 your recollection that Microsoft from time to time
25 conducts surveys of web professionals?
147